RPT-UPDATE 3-Yahoo CEO out, board settles with investor Loeb

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* CEO Scott Thompson steps down after four months

* Yahoo media chief Ross Levinsohn to be interim CEO

* Yahoo reaches settlement with hedge fund Third Point

By Alexei Oreskovic

SAN FRANCISCO, May 13 (Reuters) - Yahoo Inc Chief Executive Scott Thompson has stepped down after a controversy over a fake computer science college degree on his biography, the third CEO in three years to leave the Internet company struggling to define its future.

The departure is a victory for hedge fund manager Daniel Loeb of Third Point LLC, which is one of Yahoo’s largest outside shareholders and brought the discrepancy in Thompson’s educational background to light.

Yahoo said in a statement that its global media head, Ross Levinsohn, will be interim CEO, replacing Thompson who has left the company. It did not give a reason for his exit but said the board had settled a proxy battle with Third Point and will nominate three of its slate of four candidates to Yahoo’s board.

Thompson’s departure after just four months on the job throws into question the future of Yahoo as it struggles to revive growth amid fierce competition from the likes of Google Inc and Facebook Inc, and produce a long-term strategy to convince investors to reverse its share slide.

Yahoo had recently resumed negotiations to sell all or part of its more than 40 percent stake in Chinese Internet and e-commerce company Alibaba back to the Chinese company, after torpedoing a previous plan to do a complex tax-free transaction.

“Truly unreal. This company was struggling to find its path before any of this happened, and the situation will make them lost in the woods for that much longer,” Macquarie Securities analyst Ben Schacter said. “It is not an overstatement to say that Yahoo has profound structural problems.”

“The key question for shareholders remains how will they monetize the Asia assets. The board and shareholders, not an interim CEO, will need to figure it out,” Schacter said.

Levinsohn, who made his name running News Corp’s Fox digital business, is often mentioned as a CEO contender but the company went first with Carol Bartz in January 2009, fired her in September last year, and then named Thompson, the former president of eBay Inc division PayPal, in January.

“The disfunctionality of this company is relatively unparalleled. Nothing they do seems to work,” said Lawrence Haverty, a fund manager with GAMCO Investors, which owns Yahoo shares. “Right now I think a sale of the company is the best option. We believe the assets are worth somewhere north of $20 a share on a break up basis.”

Yahoo shares closed at $15.19 on Nasdaq on Friday. The company also appointed new director Fred Amoroso as chairman of the board, replacing Roy Bostock who left in February.

“Importantly, today’s announcements lay to rest the unfortunate and serious distractions surrounding our senior leadership and the composition of our Board going forward,” Levinsohn wrote in a staff memo on Sunday. He added, “I believe in the tremendous strength and value of our brand, and in our relationship with our users and partners.”

A media veteran, Levinsohn is popular among Yahoo’s rank-and-file and has credentials as a negotiator. He had helped steer News Corp’s acquisition of MySpace, and had started an investment fund to buy interests in various digital and media companies across the globe before joining Yahoo.

Levinsohn, who previously headed up Yahoo’s Americas business, holds a Bachelor of Arts in Communications from The American University according to Yahoo’s website.

“He is well-respected in the Valley, Hollywood and on Madison Avenue,” said Jason Hirschhorn, a former MTV digital executive. “Yahoo has to lean into media and he has the plan.”

A HASTY EXIT

Yahoo acknowledged last week that Thompson does not have a computer science degree despite what was stated in his official company biography and in regulatory filings with the U.S. Securities and Exchange Commission.

In its first-quarter 10-Q filing with the SEC last Wednesday, Yahoo acknowledged that “uncertainties” about Thompson and questions about the company’s “future direction” could hurt business opportunities and make it difficult to attract employees and business partners.

Emails sent to Thompson’s official Yahoo email address were already bouncing back on Sunday morning. He had only just began to push through a new strategy that included layoffs of 2000 people, or almost a 10th of its workforce.

Thompson had indicated his intention to move the company away from its dependence on display advertising and focus more on data and personalization, but it is not clear if Levinsohn, whose background is in advertising, would keep the plan intact.

Loeb, who has accused Yahoo of being dismissive of investors’ input, said he was happy to join the board along with his other nominees Michael Wolf and Harry Wilson: “We are confident this Board will benefit from shareholder representation, and we are committed to working with new leadership to unlock Yahoo’s significant potential and value.”

Third Point owns a 5.8 percent stake in Yahoo.

“This is a big victory for Third Point. It strengthens their argument that this board was dysfunctional, and it’s going to increase Third Point’s ability to shape the direction of the company,” Colin Gillis of BGC said. “Net net, this is a positive. It puts the situation behind. It was impossible for him (Thompson) to function effectively.”

Thompson’s departure was reported earlier by the widely followed technology blog AllThingsD.

Yahoo was a dominant player in the early days of the Internet but has struggled for years to maintain its relevance as social media, mobile computing and highly personalized advertising have redefined the industry landscape.

While brands such as Yahoo News, Yahoo Sports and Yahoo Finance remain among the most popular destinations on the Web, a relentless industry-wide decline in display advertising prices has made it difficult to make money on those assets and raised questions about the long-term viability of an ad-based strategy.

Some said Yahoo could ill-afford yet another controversial CEO departure.

“This CEO mess is going to leave Yahoo all tied up for at least several more quarters,” said industry analyst Jeff Kagan. “They have tried several strategies with several CEOs and they just can’t stop the fall.”